IMF Launches a New Study on Economic Transformation in Arab Countries in Transition

Press Release No. 14/163
April 11, 2014

The International Monetary Fund (IMF) today released a study entitled “Toward New Horizons—Arab Economic Transformation Amid Political Transitions,” which highlights the urgency of pursuing bold economic policy reforms to achieve economic stability and generate job-creating growth in the region. The study examines the economies of Egypt, Jordan, Morocco, Yemen, Tunisia, and Libya and concludes that the near-term economic outlook continues to be challenging and that the priority for the coming year is maintaining economic stability.

“Arab Countries in Transition have maintained economic stability while navigating through difficult economic and socio-political terrain. However, economic growth is still too low and the jobs created are far too few to meet the aspirations of the people that took to the streets more than three years ago, in part to ensure better access to economic opportunity. The priority now is to launch ambitious reforms to raise growth and make a dent in the countries’ high rates of unemployment, especially among youth,” said IMF Managing Director Christine Lagarde.

Unless strong economic and financial reforms are implemented, recovery will be insufficient to reduce the region’s high rates of unemployment in a meaningful way, particularly among the women and youth, the study says. The authors, an IMF staff team led by Harald Finger and Daniela Gressani, recommends focusing on three medium-term policy priorities for Arab Countries in Transition (ACTs): creating more jobs in the near term, reducing vulnerabilities to safeguard economic stability, and setting in motion reforms to generate higher and more inclusive growth in coming years. The authors argue that fiscal policy should aim to reorient resources toward raising public investment while protecting vulnerable groups through well-targeted social assistance. Fiscal policy also needs to remain anchored in policy frameworks that maintain and strengthen economic stability.

In addition, the study finds that a strong economic reform agenda will be essential for propelling private sector activity and fostering a more dynamic, competitive, innovation-driven, and inclusive economy. Deepening trade integration can offer significant gains. In addition to the large potential direct gains of boosting exports, trade integration can serve as catalyst for reforms in other areas that will help countries compete. Tackling complex and burdensome business regulation could unleash entrepreneurial activity and private investment, and reduce informality and corruption. Large benefits could be gained from strengthening access to finance especially for small and medium enterprises, an area the ACTs lag behind all other regions in the world. Labor market and education reforms can provide incentives for hiring and participation in the formal labor market. And countries need to create efficient social safety nets to protect the poor and vulnerable in cost-effective ways.

“The agenda for jobs and growth in the Arab Countries in Transition has to be tackled in a complex, evolving socio-political environment. Countries should carefully prioritize and sequence their reforms in the context of a changing political economy that requires broad-based consensus building and buy-in from stakeholders that were previously excluded,” Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, said today at a press conference in Washington.

The authors contend that stepped-up support from the international community will also be critical, through increased financing, better access for the ACT’s exports to advanced economies’ markets, and broader policy advice and capacity-building.

This study will serve as an important input to the regional conference organized by the IMF, together with the Jordanian government and the Arab Fund for Economic and Social Development that will be held in Amman, Jordan, on May 11-12. The conference titled “Building the Future: Jobs, Growth, and Fairness in the Arab World”, will be attended by Ministers and Central Bank Governors from the region, as well as Managing Director Lagarde. It will provide a forum for debate among high-level policymakers, the private sector, civil society leaders, and academics on the main elements of an economic vision for the ACTs.